Peak Oil Primer

1. Peak oil primer

What is peak oil?

Peak oil is the simplest label for the problem of energy resource depletion, or more specifically, the peak in global oil production. Oil is a finite, non-renewable resource, one that has powered phenomenal economic and population growth over the last century and a half. The rate of oil ‘production’, meaning extraction and refining (currently about 85 million barrels/day), has grown almost every year of the last century. Once we have used up about half of the original reserves, oil production becomes ever more likely stop growing and begin a terminal decline, hence ‘peak’. The peak in oil production does not signify ‘running out of oil’, but it does mean the end of cheap oil, as we switch from a buyers’ to a sellers’ market. For economies leveraged on ever increasing quantities of cheap oil, the consequences may be dire. Without significant successful cultural reform, severe economic and social consequences seem inevitable.

Why does oil peak? Why doesn’t it suddenly run out?

Oil companies have, naturally enough, extracted the easier-to-reach, cheap oil first. The oil pumped first was on land, near the surface, under pressure, light and ‘sweet’ (meaning low sulfur content) and therefore easy to refine. The remaining oil is more likely to be off-shore, far from markets, in smaller fields and of lesser quality. It therefore takes ever more money and energy to extract, refine and transport. Under these conditions, the rate of production inevitably drops. Furthermore, all oil fields eventually reach a point where they become economically, and energetically, no longer viable. If it takes the energy of a barrel of oil to extract a barrel of oil, then further extraction is pointless, no matter what the price of oil.

M. King Hubbert – the first to predict an oil peak

The Hubbert Curve is used to predict the rate of production from an oil producing region containing many individual wells. Source: aspoitalia.net

No oil producing region fits the bell shaped curve exactly because production is dependent on various geological, economic and political factors, but the Hubbert Curve remains a powerful predictive tool.In the 1950s the well known U.S. geologist M. King Hubbert was working for Shell Oil. He noted that oil discoveries graphed over time tended to follow a bell shape curve. He supposed that the rate of oil production would follow a similar curve, now known as the Hubbert Curve (see figure). In 1956 Hubbert predicted that production from the US lower 48 states would peak between 1965 and 1970. Despite efforts from his employer to pressure him into not making his projections public, the notoriously stubborn Hubbert did so anyway. In any case, most people inside and outside the industry quickly dismissed the predictions. As it happens, the US lower 48 oil production did peak in 1970/1. In that year, by definition, US oil producers had never produced as much oil, and Hubbert’s predictions were a fading memory. The peak was only acknowledged with the benefit of several years of hindsight.

In retrospect, the U.S. oil peak might be seen as the most significant geopolitical event of the mid to late 20th Century, creating the conditions for the energy crises of the 1970s, leading to far greater U.S. strategic emphasis on controlling foreign sources of oil, and spelling the beginning of the end of the status of the U.S. as the world’s major creditor nation. The U.S. of course, was able to import oil from elsewhere. Mounting debt has allowed life to continue in the U.S. with only minimal interruption so far. When global oil production peaks, the implications will be felt far more widely, and with much more force.

as peaking is approached, liquid fuel prices and price volatility will increase dramatically, and, without timely mitigation, the economic, social, and political costs will be unprecedented. Viable mitigation options exist on both the supply and demand sides, but to have substantial impact, they must be initiated more than a decade in advance of peaking. [Emphasis added.]

A later paper by Hirsch recommends the world urgently begin spending $1 trillion per year in crash programs for at least a decade, preferably two, before peaking. Obviously, nothing like the kind of efforts envisaged have yet begun. Hirsch was not asked to speculate on on when the peak was likely to occur.

So when will oil peak globally?

Later in life M. King Hubbert predicted a global oil peak between 1995 and 2000. He may have been close to the mark, except that the geopolitically induced oil shocks of the 1970s slowed the growth of our use of oil.

As represented in the following figure, global oil discovery peaked in the late 1960s. Since the mid-1980s, oil companies have been finding less oil than we have been consuming.

Source: www.aspoireland.org

Of the 105 oil producing countries in the world, up to 65 have passed their peak of production and are now in decline, including the USA in 1970, Indonesia in 1997, Australia in 2000, the UK in 1999, Norway in 2001, and Mexico in 2004. Hubbert’s methods, as well as other methodologies, have been used to make various projections about the global oil peak, with results ranging from ‘already peaked’, to the more optimistic 2035. Many of the official sources of data used to model oil peak such as OPEC figures, oil company reports, and the USGS discovery projections, upon which the international energy agencies base their own reports, can be shown to be frighteningly unreliable. In November 2009, the International Energy Agency’s World Economic Outlook report stated that oil and gas liquids were not expected to peak until 2030, at significantly higher levels than today, however this was met by rebukes from internal whistleblowers who argued that the figures are more political than scientific.

ASPO’s latest model suggests that regular conventional oil reached an all time peak in 2005. If heavy oil, deep-water, polar and natural gas liquids are considered (the ‘all-liquids’ category), the model suggests that this peak too is behind us, in 2008. Combined oil and gas is expected to have peaked globally simultaneously in 2008. Given their historical optimism, it was notable that in their World Energy Outlook of 2010 the International Energy Agency stated that the most likely scenario is that conventional crude oil production “never regains its all-time peak of 70 million barrels per day reached in 2006.” Fatih Birol, Chief Economist of the IEA, said this in a frank interview in April 2011:

We think that the crude oil production has already peaked in 2006, but we expect oil to come from the natural gas liquids, the type of liquid we have through the production of gas, and also a bit from the oil sands. But in any case it will be very challenging to see an increase in the production to meet the growth in the demand, and as a result of that, one of the major conclusions we have from our recent work in the energy outlook is that the age of cheap oil is over.

When asked if he was personally concerned, he replied:

I am afraid that there will be more and more intersection between oil and geopolitics. This is the first worry. The second worry is the sudden increase in the oil prices. This is not good news for anybody. I myself, I never bought a car, and I will never buy a car… I will not be affected that way directly, but there will be other ways which will affect my personal life through perhaps some implications on economic growth, the way of life, and others. Yes, I am personally worried.

Decline rates

Perhaps an even more more significant question than ‘when will oil peak?’ may be: What will be the future rate of decline of oil production? Some form of co-ordinated adaptation might be possible if the annual drop in available oil was no more severe than 1-2% a year. Whereas 10% or more would soon implode the global economy. The IEA predicts a long plateau and a very modest global decline rate. Most independent models project decline rates between 2-4%.

Exports

Nations dependent on imports are likely to find that their access to oil will fall at a far sharper rate than the global decline rate. During shortages, higher oil prices stimulate the economy of exporting nations which increases their internal consumption. Combined with a national peak in oil production, exports from any particular nation can drop to zero disturbingly quickly.

Natural gas peak

The effects of natural gas peak are relatively localized. This is due to the enormous economic and energetic expense of liquefying and transporting natural gas as a compressed liquid. Both European and North American natural gas production have likely already peaked, so these regions are facing the extra severity of a dual energy crisis.

Financial collapse and oil peak

After several years of rapid growth, the global crude price began falling in lockstep with financial markets in 2008, a fact which may have both contributed to – and masked – a concurrent global oil production peak. The oil industry has been running on a treadmill since 2005 with production staying essentially flat. Capital for oil infrastructure investments, which might have seen new production continue to offset declines for a few more years yet, has withered.

Conversely, the financial collapse itself was triggered in part by the approach of peak oil: higher commuting costs due to soaring oil prices set off the ‘exurb’ house price collapse in the US and put stress on mortgage repayments, leading to the subsequent collapse of the mortgage backed securities bubble and further financial unraveling. But this was merely a trigger event. In the long run, peak oil poses far more fundamental challenges to our dominant economic systems which are predicated on perpetual growth.

But it’s just oil and gas – there are other fossil fuels, other energy sources, right?

To evaluate other energy sources it helps to understand the concepts of Net Energy, or the Energy Returned On Energy Invested ratio (EROEI). One of the reasons our economies have grown so abundant so quickly over the last few generations is precisely because oil has had an unprecedentedly high EROEI ratio. In the early days of oil, for every barrel of oil used for exploration and drilling, up to 100 barrels of oil were found. More recently, as oil recovery becomes more difficult, the ratio has become significantly lower. Certain alternative energy ‘sources’ may actually have EROEI ratios of less than one, such as many methods of industrially producing biodiesel and ethanol, or extracting oil from shale. That is, when all factors are considered, you probably need to invest more energy into the process than you get back.

Hydrogen, touted by many as a seamless solution, is actually an energy carrier, but not an energy source. Hydrogen must be produced using an energy source such as natural gas or nuclear power. Because of energy losses in transformation, the hydrogen will always contain less energy than was invested in it.

Some alternatives such as wind, solar thermal and hydro-power may have much better EROEI, however their potential expansion may be limited by various physical factors. Even in combination it may not be possible to gather from renewable sources of energy anything like the rate and quality of energy that industrial society is accustomed to. Peak oil author Richard Heinberg uses the metaphor that whereas fossil fuels are akin to a massive inheritance, one spent rather drunkenly, renewables are much more like a hard won energy wage.

For certain tasks, such as air travel, no other energy source can readily be substituted for oil in large quantities. As noted by the Hirsch reports, alternative energy infrastructures require long periods of investment, on the scale of decades, to be widely implemented. We may be already leaving the period of cheap energy before we have begun seriously embarking on this task.

It’s worth noting briefly that any EROEI study is complex and different methods of accounting can come up with vastly different results, so any net energy study might be viewed with some suspicion. We may not know with total certainty the usefulness of any renewable energy technologies until the hidden fossil fuel energy subsidies are finally removed.

2. Further information

Peak oil and climate change: If peak oil merely threatens industrial civilisation, climate change promises to destabilize the planetary biosphere. The two issues are integrally related, and solutions to peak oil can also address climate change. Consider how we might bridge peak oil and climate change activism. David Holmgren has begun integrating peak oil and climate change into a global scenario planning framework.

Peak everything: Peak Everything is the name of a book by peak oil author Richard Heinberg. Globally we have already passed peaks or are soon to be facing them in copper, phosphorous, fish catches, grain production, per capita fresh water and uranium to name but a few. This is no coincidence, we have been consuming the world’s resources at an unprecedented rate. The human population, which has risen in lockstep with fossil fuel production, will likely peak more or less in sync with these fuels.

Oil and food production: Essays The Oil We Eat by Richard Manning, and Eating Fossil Fuels by Dale Allen Pfeiffer both look at modern agricultures’ dependence on fossil fuels. Both are highly recommended.

Audio and video: Check out audio and video in the resilience.org articles and resources streams. Peak Oil?– a 44 minute TV special from Four Corners (Australia), viewable online (July 2006) The End of Suburbia and A Crude Awakening – two excellent peak oil documentaries purchasable on DVD.

News and commentary:The Oil Drum the daily Drum Beat is a collation of news stories Peak Energy Australian Big Gav’s aggregation and commentary on energy related news Gristmill – environmental news and articles, with an increasing emphasis on energy, sustainability and climate Resource Insights – Kurt Cobb publishes intelligent peak oil informed commentary on a broad range of issues. Casaubon’s Book – several essays and how-to articles a week from author, mother and farmer Sharon Astyk James Kunstler’s blog – peak oil commentary with a special focus on cultural decline. See both www.kunstler.com and jameshowardkunstler.typepad.comCrisis Energética – peak oil news in SpanishBooks:The Post Carbon Institute carries most of the significant books on the issues.

3. What can be done?

Many people are working on preparations for peak oil at various different levels, but there is probably no cluster of solutions which do not involve some major changes in lifestyles, especially for the global affluent. Peak oil presents the potential for quite catastrophic upheavals, but ultimately also some more hopeful possibilities: a chance to address many underlying societal problems, and the opportunity return to simpler, healthier and more community oriented lifestyles.

The Community Solution to Peak Oil. Many excellent resources are available through the website of this Ohio based organization “dedicated to the development, growth and enhancement of small local communities… that are sustainable, diverse and culturally sophisticated.” The Community Solution have hosted several recent grassroots peak oil conferences, and have developed an important film, The Power of Community: How Cuba Survived Peak Oil, documenting how this country has relatively successfully adapted to a political oil peak after the collapse of the Soviet Union. www.communitysolution.org

Permaculture: Permaculture is a ‘design science’ which can allow us to live in relative abundance with minimal resource use. Permaculture principles and practice can be applied to functionally redesigning social systems, built environments, ecological and agricultural practices the post-peak era. David Holmgren’s 2001 book, Permaculture: Principles and Pathways Beyond Sustainability, deals explicitly with the global oil peak and proposes permaculture as the best set of strategies for dealing with what he terms ‘energy descent’. www.permacultureactivist.netwww.permacultureinternational.orgwww.holmgren.com.au

Local Currencies and Steady State Economics: Local Currencies:Richard Douthwaite, a ‘recovering economist’, proposed a number of alternative monetary systems to deal with energy decline and the associated monetary crises which might arise post-peak. Local currencies like LETS are in operation around the planet already (although LETS itself may be somewhat problematic). Experiment now with local currencies to help survive economic crises. The Foundation for the Economics of Sustainability (FEASTA) has some of Richard Douthwaite’s publications available for free online, including entire books as well as masses of other excellent research and articles by other writers, relating not just to economics and local currencies, but to various aspects of sustainability. See also:www.communitycurrency.org/resources.html

Intentional Communities: Intentional Community (IC) is an inclusive term for ecovillages, cohousing, residential land trusts, communes, student co-ops, urban housing cooperatives and other related projects and dreams… ICs represent one of the sanest ways of dealing with energy peak. www.ic.orggen.ecovillage.orgwww.cohousing.org

Tradable Energy Quotas (TEQs) are a system for rationing fuel which includes everyone – individuals, industry and the Government – and which enables users to sell any rations they do not use. www.teqs.net

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